Israel’s benchmark bonds declined, driving yields higher for the first time in eight days, on speculation the central bank will maintain interest rates over the next year amid signs of an economic recovery.
The yield on the 5.5 Mimshal Shiklit notes due January 2022 rose one basis point, or 0.01 percentage point, to 4.68 percent at 3:30 p.m. in Tel Aviv. The rate has gained 15 basis points this quarter. The Bank of Israel held the benchmark lending rate at 2.5 percent for a second month on March 26, and the bank’s research department predicted the rate would remain at the current level through the first quarter of 2013.
“Yields on long-term bonds are rising as the central bank indicated that interest rates will not decline in the near future,” said Moshik Yaniv, head of the local fixed-income desk at Migdal Capital Markets Ltd., in Tel Aviv.
Israel posted a monthly unemployment rate of 6.5 percent for last month, down from 6.6 percent in January, the Central Bureau of Statistics said today. The central bank this week raised its growth forecast to 3.1 percent from 2.8 percent, saying that “recovery in the U.S. is expected to continue.” Exports account for about 40 percent of gross domestic product, with the U.S. and Europe the largest markets.
One-year interest rate swaps, an indicator of investor expectations for the benchmark rate in the period, dropped two basis points to 2.53 percent. Borrowing costs are likely to hold at 2.5 percent for a third month at the next interest rate decision on April 23, according to 16 economists in a Bloomberg survey (ISBRANN).
The one-year breakeven rate, the yield difference between the inflation-linked bond and fixed-rate government bonds of similar maturity, rose less than one basis point to 290. That implies an average annual inflation rate of about 2.90 percent.
The Tel Aviv Bond 40 Index (TEL-B40), which measures inflation-linked and fixed-rate corporate bonds, fell 0.1 percent to 265.85. The shekel weakened 0.2 percent to 3.7356 a dollar, trimming this year’s gain to 2 percent.
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